On the Morality of Insurance Premiums

On the Morality of Insurance Premiums

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As CVS-Aetna merger talks fill the air this Christmas season and experts weigh in on the impact this will have on the economy and consumers alike, I’m sitting at a little desk in a little office contemplating health insurance.

I run a little shop that’s about as far from CVS-Aetna as you can get in the health care space : a solo practice doctor with four full time employees and revenues a little south of $65 billion dollars.  I shouldn’t feel too alone.  Small businesses account for 99% of US firms and employ almost half of all private sector employees.  But knowing my problem is one shared by many provides only partial solace.

Prior to arrival of the ACA, I provided health insurance to everyone through the company.  At the time I had 3 full time employees and the insurance broker I worked with got me a quote for $1300 / month.  Now, I really didn’t want to be in the providing healthcare business, so when the ACA arrived with its individual market I was happy to facilitate buying health insurance from the exchanges.  So initially, I chose to pay for my employees plans on the individual market.  I was quickly told by my accountant that paying for my employees insurance in this manner was running afoul of a three letter entity of the federal government called the IRS.

Apparently the individual ACA market premiums were allergic to being deducted in this pre-tax manner.   Fine.  So I went ahead and paid each employee $6000 per year extra with the understanding that they would use that money to buy health insurance on the individual market.

Thus, the ACA experiment began with me as willing participant.  Unbeknownst to me one of my employees actually bought a non-ACA plan for her family that was fairly cheap – a few hundred dollars a month for a plan that included her spouse and a child.  Unfortunately, an unplanned pregnancy and complications after the pregnancy that required multiple ER visits and hospital stays meant that the $6000 deductible very much came into play.  Riding to the rescue, of course, was the ACA, which allowed enrollment outside of the enrollment window for life changing circumstances.  Having a baby was one such life changing circumstance.  So into the more expensive, but now worth it, ACA plan the family went.

Everyone was happy until the following year.  Fueled, in part, by Swiss cheese enrollment windows, insurance premiums  meteorically rose.  My nurse fumed about paying $300 per month for a bronze plan $6,000 deductible that he never came close to using.  I promised everyone I would look at trying to buy health insurance through the company again.

And this is why I’m sitting at my little desk in my little office trying to figure out what the best thing to do is.  The former insurance broker is now non-responsive for some reason.  Going online I found some options through Independence Blue Cross and United Health but these still seemed to be fairly expensive.  I reached out to another insurance broker – who promptly showed up at my office with quotes from Independence Blue Cross that were exactly like the ones I had found online!

Me: “Are these the only options?”

Insurance Guy: “The only good ones..”

Me: “United?, Aetna?”

Insurance Guy: “They’re basically the same, but IBC is the best”

Me: “Why?”

Insurance Guy: Unintelligible mumbling

Me: “What about non-ACA plans?”

Insurance guy: “I don’t really sell those.. ”

I asked about non ACA insurance plans because I knew that part of the reason ACA plans were as expensive as they were was because these plans were required to provide a wide variety of minimum essential health benefits that raised the underlying actuarial value of the plan.

An online search brought me plans that were roughly one half of what the ACA plans were asking for with a wide network of coverage, and a similar deductible.  Excellent!  The only problem – there’s a penalty for not having an ACA plan.  The IRS enforcement of this happens by them asking you to check a box when filing your taxes affirming participation in a qualified health insurance plan.  Technically the ACA allows levying a penalty of 2.5% of your yearly adjusted gross income (this is capped at the national average total premium of a bronze plan).   The IRS has not – to date- apparently enforced the penalty, but has recently threatened to do so for those leaving the health care checkbox blank.

Complicating matters even further, the most recent tax bill passed by the House Republicans makes the tax penalty for not having insurance zero, and the Senate Republicans repeal the individual mandate altogether.  The final details are planned to be worked out by Christmas – 10 days after the Obamacare enrollment deadline passes.

I still haven’t decided what to do, but I do find it interesting that as I puzzle over buying or contributing to my office families health insurance, some of my illustrious colleagues have taken to the pages of some even more illustrious journals to bleat about the immorality of the current health/tax policies being passed at this very moment.

goat

The ‘immorality’ ostensibly refers to the recent tax reform bill that steals health insurance from the 99% to give a tax cut to the 1%.  I scratched my head at the stealing health insurance line, and so should you.  This references doing away with the individual mandate.  Apparently, if you don’t force people to buy health insurance on the exchanges – some people will choose not to buy health insurance.  In all the years I parroted the talking heads about the inhumanity of the 45 million uninsured prior to the ACA, I never stopped to think that many in that group had about as much interest in buying health insurance as my younger child has in eating broccoli.

The problem, I am told, is that not having health insurance with a $6000 deductible is the equivalent of base  jumping with a squirrel suit off a cliff.  Not eating broccoli is apparently slightly less dangerous. To hear the oracles from high castles tell it – the millions that won’t get health insurance because they no longer have to, will die in massive numbers.  It is an interesting position to take because the very same oracles bemoaning the mass graves that will need to be dug to accommodate not having access to health care also bray the loudest about the avalanche of unnecessary health care the populace receives that also necessitates the digging of mass graves.

Are the group of folks that are desperately attached to the ACA with its mandate for expensive plans on the side of all that is good in the world?  Are folks like me that are hoping for the individual mandate to be gone to make it cheaper to provide health insurance to my employees worshipers of Satan?  Is it worth mentioning that many of the physicians supporting transfer of the nation’s wealth to insurance companies are employed by medical centers with much to gain by keeping the status quo?

There is a debate to be had about the best way to provide health care to all Americans.  If you believe the solution to spiraling health care costs is to strengthen the individual mandate – go ahead and make that case.  I’m all ears.  But a word of advice: If someone brings up morality in a debate about health care policy – don’t get outraged, offer to feed them some grass instead.

Anish Koka is a cardiologist based in Philadelphia. His posts appear regularly in THCB.

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17 Comments on "On the Morality of Insurance Premiums"


Member
Barry Carol
Dec 13, 2017

Anish, I suspect that those cheap insurance plans you are referring to are called short term medical plans which are underwritten products for which an applicant must requalify every year. They are only sold to healthy people. That’s one reason why they’re cheap. The other is that they don’t cover maternity, mental illness, alcohol and drug abuse rehab and probably chiropractic care. Prescription drug coverage may also be limited to generics or expensive specialty drugs may not be covered. When healthy people buy these cheap plans and then transfer to an ACA plan after they get sick they are gaming the system and classic adverse selection results. Are you suggesting that people should just be able to wait until they get sick to buy health insurance? No insurance works this way. Try buying homeowner insurance after your house burns down or car insurance after your vehicle is totaled in an accident.

As for the single payer approach, Medicare spending, including the Part B and D premium as well as IRMAA surcharges, already costs roughly $12,000 per year per person. By definition, of course, Medicare is paying for services, tests and procedures at Medicare rates. The experts tell us that the over age 65 population uses roughly twice as much healthcare per person as the under 65 population which includes millions of children who are, for the most part, cheap to cover. Thus, that implies that it would cost $6,000 per capita annually to cover the under 65 population at Medicare rates.

I find it interesting that when it comes to health insurance, people feel ripped off if their health insurance premium exceeds their healthcare claims. By contrast, I haven’t had a claim on my homeowner insurance policy in over 44 years. I don’t feel ripped off. I feel lucky. The same is true for auto insurance. A year without a car accident is a good year and I don’t mind paying an insurance company a reasonable premium to protect me in case I have an accident.

People can’t expect to be able to wait until they get sick to acquire health insurance. If you don’t like the individual mandate, what do you suggest instead? Maybe a requirement to show you had creditable insurance coverage with no more than a 63 day gap in coverage to acquire a new policy without being subject to underwriting. Maybe there should be a requirement to pay an additional 1% in premium forever for each month that you didn’t buy insurance when you could have and should have. That’s the way Medicare Part B works.

If you want to see lower health insurance premiums, we need lower healthcare costs. Our litigious society drives the medical specialty societies to develop practice patterns that reflect that litigation risk. Extra tests just to be sure drive up costs. Hospitals are expensive places to get care. Maybe more surgical procedures can be safely done in ASC’s at half the cost that hospitals are typically paid. There’s lots of futile and expensive care at the end of life much of which the patient may not even want but can no longer communicate that fact. Nursing homes provide unnecessary physical therapy to drive up revenue for the home, not to benefit the patient. There is plenty of fraud in both Medicare and Medicaid. Specialty drugs cost way too much in many cases based on reasonable QALY metrics. While there is no silver bullet to fix healthcare, there are lots of silver pebbles. Insurance companies are not the problem. Healthcare costs and healthcare claims are the problem.

Member
Peter
Dec 12, 2017

You’ve just learned that health insurance is about the math of risk and coverage. The larger and more diverse the pool, the lower the risk, the more things covered, the more expensive the plan. There’s no free lunch or magic plan, either ACA or non-ACA.

Reducing coverage for an individual to save money means THAT coverage is more expensive for the other guy needing it.

Single-pay with 350 million people in the pool spreads the risk and means we all contribute. Single-pay also means a better chance at price controls.

You’re quibbling about insurance costs for four employees with $65 billion in revenues – really?

Member
Steve2
Dec 11, 2017

“My nurse fumed about paying $300 per month for a bronze plan $6,000 deductible that he never came close to using. ”

300 x 12= 3600

“So I went ahead and paid each employee $6000 per year extra with the understanding that they would use that money to buy health insurance on the individual market.”

6000-3600= 2400

” At the time I had 3 full time employees and the insurance broker I worked with got me a quote for $1300 / month. ”

1300 /3= 433

1) Your nurse is making $2400 in profit on this deal. ( I am assuming you mean here by never came close to using that he is healthy and not really using the insurance.)

2) The bronze plan is $133 cheaper per month than what you were paying.

3)”An online search brought me plans that were roughly one half of what the ACA plans were asking for with a wide network of coverage, and a similar deductible.”

I kind of have to assume they also have limits on what they cover, so how do you not end up in the same place where the first nurse in your story ended up if you go with these plans?

4)” This references doing away with the individual mandate. ”

And doing away with Medicaid coverage. (It also means that costs will rise quite a bit. Perhaps you have a solution to the free rider problem?)

Steve

(Every year I have to look at plans for the 100 or so people we employ. If there is anything you learn from doing that it should be, if it is to good to be true, something is wrong. Since we are right outside Philly, we probably deal with the same insurance products. Our brokers have steered us away from the products you are talking about, but maybe they are wrong. Which insurers are we talking about here? Blue Cross? Aetna?)